| |
The
art of investment
Sun Tzu on Investing by Curtis J Montgomery
Review by Gary LaMoshi
 Authors
are hard-pressed to find anything new to tell equity investors. The father of
modern value investing, Benjamin Graham, published his groundbreaking Securities
Analysis almost 70 years ago, when his prize pupil Warren Buffett was
still in short pants. Buffett has been a household name, to investors at least,
for two decades and his annual letters to shareholders of his Berkshire
Hathaway investing colossus are the recognized holy grail for long-term value
investors (and available free online to boot).
The new economy that "changed everything", according to its proponents, and
gave us the dot-com bubble has been thoroughly discredited. Buffett's steadfast
refusal to drink the Kool-Aid elevated his status as the Oracle of Omaha, and
confirmed that for investors there's really nothing new under the sun.
Author Curtis Montgomery, though, has tried to find something new for investors from
the Sun: ancient Chinese General Sun Tzu. Around the time Athenians were
creating their democracy and Confucius was speaking wisely, Sun Tzu wrote a
military guidebook that we now know as The Art of War. According to
legend, Sun presented the book to the King of Wu, who was skeptical of the work
totaling a scant 6,000 characters. He challenged Sun to prove his prowess by
organizing the royal concubines into a fighting force. Sun succeeded, though
not before ordering the execution of two concubines who failed in their duty as
commanders, and became a trusted military advisor to the kingdom.
Today, Sun's work and the Taoist thought infused therein are considered key
underpinnings of Chinese and Japanese cultures. The Art of War is also de
rigueur for Westerners working in Asia and/or trying to understand
better the Asian values (a phrase heard among savvy business leaders these days
about as often as "Japan's global business dominance" or "hot dot-com").
Montgomery, an investment writer living in Singapore, brings Sun Tzu's
strategic thinking to the equity markets in Sun Tzu on Investing.
What Montgomery calls a "Sun Tzu investor" seeks "sure-win" stock market
situations: "fight only when it is easy to win", as Sun put it. To actualize
that ideal, an investor must focus on strategy and discipline, combined with
the patience to wait for the right opportunities. In a world, and stock
markets, of yin and yang, adopting Master Sun's philosophy includes embracing
the ambiguous, sometimes paradoxical nature of Taoist thinking, such as
sticking to your strategy while simultaneously adapting it to fit changing
circumstances.
Master Sun's wisdom can assist equity investors from two perspectives,
Montgomery contends. Most important, it can help them improve their own stock
selection and portfolio-management skills. It also identifies key traits for
investors to identify great companies, a key element for successful long-term
investing, and great managers, a current hot topic in the light of US corporate
scandals.
For actually identifying those "sure-win" stocks, though, Sun's insights from
2,500 years ago are little help. For that Montgomery presents his own
strategies, borrowing heavily from Buffett, whom Montgomery calls the ultimate
Sun Tzu investor. A Buffettesque long-term value investor, Montgomery disdains
chartists, who preach previous market movements predict future ones, and
speculative traders. In fact, he basically agrees with Buffett that the right
time to sell a good stock is "never", unless there's a more compelling
opportunity. Montgomery's Sun Tzu investor aims for having just one or two
stocks out of 10 bring in 800 percent or better returns the way Buffett's 1988
investment in Coca-Cola has.
Montgomery's methods for unearthing those eight-baggers include stock screens
based on traditional financial analysis techniques. He points out the Taoist
flavor of such analysis that uses intricate algebra in combination with future
income projections, essentially guesswork that may be wildly inaccurate. But
beyond the numbers, Montgomery urges that investors actually get out and visit
companies, using their "home field advantage" to seek potential investments in
their areas, talk to upper management and tour plants and offices. Studying
companies at that depth limits portfolios to no more than 10 stocks, but
increases the chances of selecting wisely.
Visits and discussions, like other research, should provide solid insights, not
gut feelings. Through Master Sun's wisdom, Montgomery says investors can take
the emotion out of decisions. Sun strove to overcome fear in battle among his
troops and, according to the book, was an early student of mass psychology.
Both traits are important for investors, particularly having the courage to
defy conventional wisdom, buy when the market says sell to get the best prices
and avoid investing fads and frenzies.
Montgomery founded the personal-finance website www.wallstraits.com with the
motto "investing is serious fun", and Sun Tzu on Investing is written in
that vein. He has an engaging style, mixing his own experiences in finance with
insights from investing classics, company case studies including some from his
home field in Asia, an accent on creativity (investing, like war, is an art,
not a science), and easy-to-follow instructions for doing the math necessary
for analysis. For some readers including this one, all of that makes the book
helpful, welcome and worthwhile. But there's little new in Montgomery's
common-sense, value approach. That's where Sun Tzu comes in, and some readers
may judge the book on how well Montgomery molds Sun's "simple genius" to equity
investing.
Much of The Art of War consists of useful, insightful nuggets: "think
before you act" or "act when you are sure of a favorable outcome". This next
example begins sensibly enough:
When you know others, then you are able to attack them. When you know
yourself, you are able to protect yourself. Attack is the time for defense,
defense is a strategy of attack. If you know this, you will not be in danger
even if you fight a hundred battles. When you only know yourself, this means
guarding your energy and waiting. This is why knowing defense but not offense
means half victory and half defeat. Yeah, sure, whatever. That
kind of "timeless concept" brings to mind Argentine writer Jorge Luis Borges
and his ficciones, a couple hundred words presenting the bare bones of
story, that some hailed as brilliant and others saw as proof that even the
writer wasn't interested enough in his tale to write it properly. It all
depends on where the Sun shines for you.
Sun Tzu on Investing by Curtis J Montgomery, John Wiley
& Sons, Singapore, 2003. ISBN: 0-470-82107-8. Price: US$24.95, 278 pages.
(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com for information on our
sales and syndication policies.)
|
| |
|
|
 |
|
